If you are just coming out of bankruptcy, you might view credit cards in a dim light because of your recent debt experience. People that struggled with credit card debt in the past are often hesitant to have plastic in their wallet ever again. Even if you don’t like the idea of credit cards, they are a valuable tool to rebuild your credit score after your bankruptcy discharge. The key is to use cards wisely.
How Many Credit Cards Do You Need?
The number of credit cards you have in your wallet doesn’t directly impact your credit score. There’s no magic number of cards that will help you get the score you want. However, having multiple cards that you use strategically can indirectly impact your credit score. There are several ways credit cards can help re-establish your credit score after bankruptcy.
Having several credit cards can help your utilization ratio. This is important because it accounts for about 30% of your overall credit score. Utilization is the percentage of your available credit that you’re using. So, if you have six credit cards with $500 credit limits each, you have a total credit line of $3k. If you have $1000 in balances, that means you are utilizing one-third of your credit.
Using 33% of your credit lines (or more) can cause your credit score to drop. That’s when having more cards can help. If you have more cards or higher credit lines on your existing cards, your utilization will drop without you paying down your debt or making any other effort.
How Many Credit Cards Do You Have?
More than 75% of adults in America have at least one credit card, and most have between two and four cards according to Credit Cards dot com. According to Credit Karma, there’s a correlation between a high credit score and multiple credit cards but just having lots of cards won’t boost your score. Instead, you should manage the cards you have wisely and obtain new ones strategically.
Using Credit Cards to Rebuild Your Credit Score
Simply having credit cards won’t improve your FICO score – it’s all about how you use them. Here are some tips to use your cards to boost your credit score.
1 - Pay on time and in full
Your credit score is a calculation based on data about how you use debt and manage our finances. You must demonstrate that you can use credit responsibly. Part of that is paying your credit card bill on time and in full. Carrying balances over month-to-month can be a slippery slope and should be avoided at all costs.
2 - Treat it like a debit card
Sometimes credit cards don’t feel like real money when you spend using them. But since debit card transactions come right out of your checking account, you feel the pain. If you treat your credit cards as a debit card and force yourself to pay off everything you charge when the statement comes due, you will boost your score while avoiding debt.
3 - Keep accounts open
Another factor in your credit score is length of credit history. This is also called “average age of credit” and is a simple average of how long your revolving accounts (i.e., credit cards) have been open. If you close out older accounts, you can shorten your average age of credit and drop your credit score. Be sure to check this important number before you close an older account.
Rebuilding credit is a process
If you’re not sure what you need to do to rebuild your credit after bankruptcy, or you’re not having any luck, it’s time to consider Credit Score Keys. We help people improve and re-establish their credit scores after bankruptcy to make the most of their fresh financial start. Find out more today.